Surprised Your Mortgage Repayments Aren’t Lower? Let’s Uncover Why!

As you continue your mortgage journey, I wanted to share some insights on how your offset account and redraw facility can be powerful tools to save you money—and how they work in tandem with your regular mortgage repayments.

What is an Offset Account?

An offset account is like a savings account linked to your mortgage. The money you keep in this account reduces the portion of your loan subject to interest. For example, if you have a $300,000 mortgage and $20,000 in your offset account, you’ll only pay interest on $280,000. This can lead to significant savings over the life of your loan!

Why Don’t Repayments Decrease with an Offset?

While your offset account helps reduce the interest you pay, your monthly mortgage repayments stay the same. This consistency is actually beneficial because as more of your repayment is applied to the principal, you’ll pay off your loan faster, ultimately saving you thousands of dollars over the life of the mortgage.

Understanding Your Mortgage Repayments: Principal vs. Interest

Your mortgage repayment is typically made up of two components: principal and interest. The principal is the amount you borrowed, while the interest is the cost of borrowing that money. In the early years of your mortgage, a larger portion of your repayment goes towards interest. As you pay down your loan, more of your repayment starts going towards reducing the principal.

How Do Offset and Redraw Balances Affect Repayment Composition?

The balance in your offset account directly impacts how much interest you pay, which in turn affects the ratio of principal to interest in your repayments. When you have a higher balance in your offset account, less interest is charged, meaning more of your regular repayment goes towards reducing the principal. Conversely, if you withdraw funds from your redraw facility, increasing your loan balance, the interest portion of your repayment will rise, and less will go towards paying down the principal.

How Can You Make the Most of These Features?

To maximize your savings, consider keeping as much as possible in your offset account and be mindful of withdrawals from your redraw facility. This strategy reduces your loan balance, lowers your interest payments, and helps you build equity faster.

If you’re thinking about refinancing, buying a new home, or just curious about your mortgage options, now is a great time to connect with a mortgage expert! Our trusted partner, Finance Next Door, can help you find the best solutions tailored to your needs.

Book an appointment today to chat with one of their experienced mortgage brokers and take the next step toward securing your financial future.